---
title: "JPMorgan’s Kolanovic Says Oil at $80 Is Where S&P 500 Breaks"
description: "A surge in oil prices following a strike on Saudi Arabia’s crude production will have to get a lot bigger to cause serious trouble for the stock market, according to JPMorgan Chase & Co. strategists led by Marko Kolanovic."
type: "NewsArticle"
publisher: "Daily Maverick"
site: "https://www.dailymaverick.co.za"
section: "Business Maverick"
author: "Bloomberg"
author_url: "https://www.dailymaverick.co.za/author/bloomberg/"
canonical_url: "https://www.dailymaverick.co.za/article/2019-09-17-jpmorgans-kolanovic-says-oil-at-80-is-where-sp-500-breaks/"
published: "2019-09-17T04:49:48"
lang: "en-ZA"
word_count: 362
---

# JPMorgan’s Kolanovic Says Oil at $80 Is Where S&P 500 Breaks

> A surge in oil prices following a strike on Saudi Arabia’s crude production will have to get a lot bigger to cause serious trouble for the stock market, according to JPMorgan Chase & Co. strategists led by Marko Kolanovic.

By Bloomberg · Published 17 September 2019, 06:49 SAST

## Content

The S&P 500 Index may start experiencing a “negative impact” only when oil prices reach a range of $80 to $85 a barrel, Kolanovic said after studying the historic relationship between the two assets. That’s about 30% above from crude’s recent levels around $62.

Higher oil prices can bolster energy profits and employment in the industry, but a rapid gain can hurt consumer spending, a key support in the U.S. economy. While Monday’s 15% surge was one of the fastest on record, crude still trades at less than half the peak level seen in 2008. Moreover, intensifying [clashes](https://www.bloomberg.com/news/articles/2019-09-16/saudi-led-yemen-coalition-says-iran-weapons-used-in-oil-attacks) in the Middle East may prompt China and the U.S. to reach a trade deal to remove uncertainty over the global economy, Kolanovic pointed out.

“Where is the break-even point when oil starts hurting the S&P 500?” he wrote in a note to clients. “This is still far away.”

That’s not to say oil has no impact on stocks at current levels. Energy shares rallied 3.3% Monday along with crude prices, offsetting losses in consumer stocks. To Kolanovic, the outperformance will accelerate a rotation from momentum and low-volatility stocks to value, a process that has bolstered previously unloved industries like energy and caused [pain](https://www.bloomberg.com/news/articles/2019-09-09/hedge-funds-getting-burned-as-growth-stocks-trounced-by-value) for many traders this month.

The reversal came after valuations in low-volatility and momentum stocks increased to unprecedented levels relative to value. So much money has flowed to the long low-vol, short value trade that it’s reminiscent of the 2018 [vol-pocalypse](https://www.bloomberg.com/news/articles/2018-02-06/credit-suisse-is-said-to-consider-redemption-of-volatility-note) to Kolanovic.

In 2017, market calm lured investors to a sense of complacency with bets on a decline in volatility reaching a record. That trade went bust in February 2018, leading to the closure of VelocityShares Daily Inverse VIX Short-Term ETN, or known as its ticker XIV.

Since then, investors have sought safety in low-vol and shunned risky assets such as energy, pushing the risk-off trade to extremes that Kolanovic sees at the cusp of collapsing like XIV.

“These trades worked well until the rotation started, and now are in the early stages of a collapse,” he said. “The recent spike in oil will just accelerate this unwind and eventually lead to a capitulation of the short value/beta trade.”